HYCM Market Insights & Trading Tips

RBA minutes: Don’t get ahead of the Fed!
by Giles Coghlan, Chief Currency Analyst, HYCM


If there is one thing the RBA wants to avoid it is this: outpacing the Fed in any recovery. However, the latest RBA minutes show the central bank needs to accept that the AUD is set to get stronger. The RBA repeated in the minutes that they expect to have to give ‘very significant’ monetary support for sometime. As some suspected the RBA have also revealed why they extended their bond purchase program. It was to do with keeping the AUD weak. They said in the minutes, as a little tell, that if the central bank had allowed QE to end in April the AUD would have risen.

Well, the AUD has risen anyway. The RBA will have to accept AUD strength.

There is a long line of central banks who have had to accept that it is very hard to fight market forces. The Swiss National Bank and the Reserve Bank of New Zealand in recent history have realised currency ‘wars’ can only be fought for so long. In the end, it is probably better not to even attempt starting them. The SNB’s attempt at the 1.2000 EURCHF peg is the stand out example. Just take a look at the chart when the SNB removed the peg in January 2015. The PBOC wisely stepped aside from any rumoured battle last year.


Balancing act

The RBA has a delicate balancing act to perform. The RBA can’t afford to get ahead of other central banks as it will send the AUD rocketing higher. So, if the RBA started tapering bond purchases or bringing interest rate rises forward it would ignite the AUD. The problem with that is it will then damage both its export and its jobs market. So, expect it to keep on with the mantra that there will be ‘no interest rates hike until 2024’ and they will want to toe the global party line of ‘no tapering!’. The RBA will keep trying to stay behind the major central banks as a smaller player on the field.

Read the RBA full minutes. Read the RBA decision summary.

AUDJPY

Meanwhile, this means that the reflation narrative of buying the AUDJPY dip remains the base case. The same is true for the AUDCHF as well.


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What’s the RBNZ’s move tomorrow?
by Giles Coghlan, Chief Currency Analyst, HYCM

The RBNZ is going to meet at 01:00 tomorrow (February 24). Afterwards, the RBNZ will hold a press conference at 0200. The most likely result is that the RBNZ will have no change to the policy, but will give a conservative summary that will fail to hold back NZD strength.

The recent run of economic data for New Zealand has been good. The rising 2-year inflation expectations, housing prices increase, as well as falling unemployment (February saw a surprise fall to 4.9%), all mean the NZD should still face buying pressure. On top of this improving data, the potential for negative rates has also receded with the current monetary policy seen to be working.

NZD strength

This means that the broad outlook for the NZD should be more strength. Yes, the RBNZ will not want to push ahead of the Fed in terms of rising interest rates, so expect the potential for a dovish tilt in the bank’s rhetoric talking about ‘risks’ ahead etc.

Economists polled by Reuters ahead of tomorrow’s meeting expect rates to remain unchanged at 0.25%. Finally, the RBNZ shadow board said (a kind of duplicate of the board which meet before the ‘real board’ meeting) there was no ‘need for change’ at this meeting. Read their full report.


NZDJPY long bias likely to remain

This means that the NZDJPY should remain a buy on dips after the RBNZ decision.

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Market Mood Dow Jones 23.02.21
by Giles Coghlan, Chief Currency Analyst, HYCM

Listen to the latest market mood for the Dow Jones on Youtube.


US Stocks are supported by a number of factors right now. The Federal Reserve is keeping interest rates low, QE levels high, and it shrinks from hawkish comments. Interest rates are expected to remain as they are until 2023. The Fed has also been clear that it is too early to talk about tapering and the recent run of economic data has shown strength in the US economy.

President Biden wants to vaccinate everyone who wants a vaccine by July this year, so the US economic recovery should be supported by the vaccine rollout speed.
In this environment, the majority view will be to ‘buy the dip’ in US stocks. Therefore, expect Dow Jones buyers from pullbacks lower to 30800.

Trade Risks:

1. The main risk to this trade is from any risk-off tones on COVID-19 news.
2. Any bad news about the speed of the vaccine rollout will also weigh on stocks.

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FTSE 100: Mind the gap!
by Giles Coghlan, Chief Currency Analyst, HYCM

Attached Image (click to enlarge)

The FTSE 100 has reasons for strength and that is due to the following factors:

1. Brexit is now behind the UK. A ‘no-deal’ Brexit has been avoided which means that those investors holding back from UK investment can breathe a sigh of relief.
2. Fast vaccination programme. The UK is now ahead of the curve in terms of the vaccination programme. Around 25% of the UK population has now been vaccinated. This puts the UK only behind the UAE and Israel in terms of speed of vaccination and should provide a tailwind for UK re-opening.
3. The latest UK GDP data for Q4 was admittedly the worst in the UK for around 300 years. However, crucially it was not as bad as expected. This meant the latest GDP reading was a boost for the GBP. Remember in trading it is all about the expectations vs the reality.
4. The move higher in commodities has helped the FTSE100 higher. This is due to bank stocks and mining stocks being prevalent in the FTSE 100.
5. The FTSE 100 has far more upside to recover from the COVID-19 drops compared to other European bourses, like the DAX for instance. The gap in the FTSE 100 has still to be filled and that looks like happening this year based on these factors.

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Market Mood USOIL 24.02.21
by Giles Coghlan, Chief Currency Analyst, HYCM

Listen to the latest market mood for the USOIL on Youtube.



US crude has been very strong this year rising about 25%. The reasons for this have been as follows:

1. Saudi has been cutting production,
2. There is optimism around a synchronised global recovery on vaccine rollouts,
3. The US has seen some unseasonal cold weather boosting demand.

The second half of the year should mean a further tightening of supply for oil as demand picks up on a vaccine inspired global recovery.

Expect US crude buyers from dips lower to the daily trend line.

Trade Risks: The next OPEC meeting in early March is a risk as a big increase in production numbers will weaken oil price. Saudi will want to keep production cuts whereas Russia would like to see a reduction in cuts. The dynamic between Russia and Saudi will be key to near term prices next month.

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Market Mood S&P500 25.02.21
by Giles Coghlan, Chief Currency Analyst, HYCM

Listen to the latest market mood for the S&P500 on Youtube.



The latest comments from Fed’s Chair Jerome Powell confirm the Fed’s bearish stance. Jerome Powell has stressed the Fed’s will not adjust monetary policy for the foreseeable future. This is positive for US stocks.

Low-interest rates until 2023, a large stimulus package ahead from Washington, a rapid vaccine roll-out programme and the assurances that any headwinds for the US economy will result in fiscal and monetary support all support US stocks.

Technically there is a bullish pin bar forming on the S&P500 futures chart and a break to the upside would favour higher prices.

Trade Risks: Any strong risk-off trading or hints of the Fed bring forward interest rates will invalidate this outlook.

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How to manage Bitcoin longs? (part 2)
by Giles Coghlan, Chief Currency Analyst, HYCM

This post is a follow up for those still long from the end of last year. The first part can be found here.

Sometimes a trade comes along that really hits it out of the park. When these trades come along you need to make sure that you make them count. Bitcoin longs are just such a trade. Even Bitcoin longs that were closed a long time ago ended up being the best trade of last year.

If you are currently long Bitcoin here are some thoughts on what to do. Markets, very rarely move in a straight line. So, when they show the sort of parabolic action like BTCUSD it generally makes sense to take profit at the highs of the move. Now, how do you know where the highs are? In reality, although you can look for technical clues, you don’t really know. However, current levels are very high prices and represent an excellent profit for anyone who bought in last year sub $20,000 or even at higher prices.



It can be easy to get caught in the BTCUSD hype and think that the only product to invest in right now is BTCUSD. In truth, BTCUSD is just one instrument out of many. You could consider closing some or all BTCUSD longs and moving it into lower-risk assets like the FTSE 100 or FTSE 250 which are less volatile. Whatever, you do here make this trade count. It needs to lift your bottom line and if you have hit a home run, there is no harm in putting your Bitcoin bat down and having a break.

HODL?

The other perspective is that BTCUSD is a phenomena change that will see $100,000 before it sees $20,000. If you are HODLER that is fine, just remember that a home run is a home run.

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RBNZ statement: NZD strength ahead
by Giles Coghlan, Chief Currency Analyst, HYCM

There were no major changes in the latest RBNZ meeting and Governor Orr did his part to try and talk down the NZD. The key issue for New Zealand is if their economy accelerates sharply that will benefit the NZD. Too much NZD strength hurts New Zealand exporters, so the RBNZ have an interest in trying to discourage NZD strength. However, the reality is that the market looked through the dovishness from the meeting as expected. See the preview which recognised that.

The main points from the meeting

1. Interest rates are kept unchanged at 0.25%.
2. Annual CPI now seen at 1.5% and TWI at 74.9% vs 71.5% expected.
3. No additional stimulus required, but the current monetary policy assumed to be staying at the same level for a ‘prolonged period’.
4. Large Scale Asset Purchases (LSAP) were kept the same at $100 billion.

Looking ahead

The RBNZ statement recognised the uptick in activity both globally and within New Zealand. However, the statement acknowledged the problem with the strength of the NZD. This was always going to be the RBNZ’s challenge with this meeting. How do you recognise a strengthening economy without rapidly strengthening the NZD. Well, it is done by stressing the uncertainties that are ahead. So, it is unsurprising that the RBNZ said that the economic outlook was still considered uncertain by the RBNZ.

The path for the NZD
The reaction out of the meeting was an NZD dip that was very quickly bought. This was almost certainly due to the reference to negative rates as a potential tool. Although true in theory the RBNZ are unlikely to use negative rates now. So, the NZD remains a buy on dips and the NZDJPY outlook remains the same.

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Market Mood WTI Crude Oil 26.02.21
by Giles Coghlan, Chief Currency Analyst, HYCM

Will we see oil sellers entering today before OPEC next week? Listen on Youtube.

Attached Image (click to enlarge)

Oil prices will be looking at next weeks OPEC meeting to set near term direction. One source suggests that there is a rift developing as prices are seen to be ‘definitely high’ and more oil supply is necessary to weaken prices. A 500K bpd increase is being mooted. However, another source stated that there are no more relaxations of production cuts until June. Remember, if Saudi brings back their 1mln bpd they took out of the market in January then there is a risk for a circa 2mln bpd coming back on line. That would slam oil prices lower.

There is also a strong seasonal pattern for oil prices to fall in the coming days. There has been an annualised fall in oil prices of over 60% if you had sold oil every year between 06 March and 15 March.

There is the potential for more selling next week, so it is one instrument to watch out for.

Trade Risks: Any indication from OPEC that there are unexpected production cuts will invalidate this outlook.

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Learning from history: Why stocks may be about to correct
by Giles Coghlan, Chief Currency Analyst, HYCM

An interesting Bloomberg piece has come out recently showing the relationship between rising commodity prices and stock market corrections. Here are the details:

1. The Bloomberg commodity index has risen 60% since April 2020.
2. At present this current period of commodity growth has been the fastest climb in more than 40 years. It is the 8th largest growth period since the Bloomberg Commodity Spot Index records began more than 60 years ago.

Note the following: In the top 10 months following record rises in commodity prices there tends to be a fall in the S&P500.
The record months are distributed as follows:

1. 6 months are from 1973,
2. 2 months are from 1980, and
3. the other months are from January 1974 and June 2008.

Taking these top 10 periods here is the average S&P500 performance after these strong rallies in commodities.

1. 1-month afterwards: -1.1% loss (9 out of 10 falls)
2. 3-month afterwards: -3.8% loss (7 out of 10 negative)
3. 6-month afterwards: -7.9% loss (7 out of 10 negative)
4. 12-months afterwards: -11.4% (8 out of 10 negative)

So, stock market bulls be warned. This is yet another signal that we could be close to a deeper stock market correction. Time to keep the powder dry? Certainly, it pays to keep a very close eye on developments. If commodities start dipping then expect the S&P500 to dip too.

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Why the RBNZ faces political pressure from it’s housing market
by Giles Coghlan, Chief Currency Analyst, HYCM

In the last RBNZ rate decision, the RBNZ has been needing to reference the housing market in their monetary policy decisions. This is not a normal mandate for a central bank. So, why are they having to do this?

A New Zealand surge in house prices

There has been a huge increase in New Zealand house prices. This is partly being fuelled by the very low-interest rates which means that borrowers have access to favourable lending condition. This is allowing the housing sector to keep rising in prices.

What does this create pressure for the RBNZ?

Well, potentially this ‘ties the hands’ of the RBNZ and means that they may be unable to use easy monetary policy. Take a look at the chart below and you can see that as interest rates fall house prices have risen.


The political pressure (remember the mandate to look at housing prices comes from the NZ finance minister) means that the RBNZ will not want to cut interest rates. Cutting rates will definitely further fuel the housing sector bubble. So, it is possible to argue that the RBNZ is not going to be able to easily cut rates.

But what else does it mean?

With interest rates so low many people have only ever known low mortgage rates. Many people, taking their first mortgage in particular, are unaware of the impact a fluctuating interest rate will have on their re-payments. The high-interest rates of the past have not been experienced. This is one are to watch in the future as central banks may find themselves hedged in with political and economic concerns. For now, the RBNZ policy consideration should support the NZD. NZDJPY should find dip buyers as long as the global growth narrative remains in play.



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Seasonal Insights Coca-Cola 02.03.21
by Giles Coghlan, Chief Currency Analyst, HYCM


Is Coca-Cola set for gains? Listen on Youtube

Attached Image (click to enlarge)

The Coca-Cola Company is an American multinational beverage corporation incorporated under Delaware’s General Corporation Law and headquartered in Atlanta, Georgia. The Coca-Cola Company has interests in the manufacturing, retailing, and marketing of nonalcoholic beverage concentrates and syrup.

Over the last 25 years, the company has gained 20 times in the last 25 years. The company usually has a strong time of year between 01 March and 05 June gaining an average +6.32%. Last year the company lost value during this period, but that was due to COVID-19 induced selling. The maximum gain was over +24.00% profit in 2009.

Trade Risks:

1. The main risk to this trade is if we see a major correction in equity markets which will also weigh on Coca-Cola stock.
2. A sharp rise in US 10 year yields could cause a US stock sell-off, so there are some ongoing risks in the market at the moment.

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RBA: Holding the line
by Giles Coghlan, Chief Currency Analyst, HYCM

What did the RBA statement tell us?

Firstly, there were no surprises from the RBA’s rate decision. The Cash rate and the 3-year yield target were both were kept at 0.10%. The level of bond purchases was unchanged too and stays at $100 billion AUD. The RBA also recognised that the domestic economy was recovering more quickly than expected and most firms had begun loan repayments now.

What is the RBA’s focus before raising interest rates?

1. They want to see gains in employment and a return to a tight labour market.
2. Inflation needs to be in the 2-3% target range.
3. This is not expected to occur until 2024.

What’s the economic forecast?

1. The unemployment level is due to stay around 6% for 2021 and down to 5.5% at the end of 2022.
2. CPI inflation is expected to rise temporarily due to some short term factors.
3. GDP is anticipated to grow by 3.5% over 2021 & 2022.

When do they expect to raise interest rates

2024 at the earliest. However, there is a risk here that it happens sooner. The RBA can say that rates won’t rise until 2024. However, if the market questions the credibility of the RBA expect strong AUD gains pricing in a rate hike. Remember the RBA will not want to be perceived to move ahead of the Federal Reserve. The credibility issue the Fed has is naturally going to get passed down the line of smaller banks.

On the bond purchases

The RBA brought forward bond purchases in response to the rapidly rising bond yields. The RBA was prepared to do so again if necessary.
All in all, no surprises and the AUD should remain supported on dips against the CHF and the JPY. You can read the full statement here.

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Seasonal strength ahead for the Nikkei
by Giles Coghlan, Chief Currency Analyst, HYCM

One of the questions that keeps getting pushed and pulled around in the market is whether this recent run in equities is coming to an end. Or, if not an end, then at least a pullback. This post here summarises that position and how commodities may be signalling a correction after registering their fastest climb in 40 years. See here for that previous post.

Summertime sadness?

However, the timing for that may well be still to come.‘Sell in May and go away’ is the saying that stocks tend to remain flat during the summer. It is a saying that is shown to be statistically accurate so the summer would be the logical time for such a correction.

Indices still set for gains?

The monetary conditions are just so easy right now. There are low-interest rates, high levels of Quantitate Easing, Central banks intervening to keep the yield curve low (RBA, BOJ, ECB?) and keen to be seen to not move before the Fed. The message the central banks want to give is that support will not be quickly withdrawn.

As long as any problems in stocks markets will only find support from both central bank monetary policy and Government fiscal stimulus the best approach remains to be ‘Buy the dip’. However, a significant risk here is that US 10 year yields keep rising on a faster than anticipated US recovery. This could cause a global stock sell-off.

The Nikkei is now also coming up to a very strong period from Mid March through to 01 May. It is well worth taking a look and may offer good value at market.


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Seasonal Insights DAX 04.03.21
by Giles Coghlan, Chief Currency Analyst, HYCM

Is the Dax set for gains? Listen on Youtube.



The Dax is approaching a strong time of year. With a large stimulus package planned for the US, global vaccine optimism, and a reflationary narrative there is an argument for higher prices in the Dax ahead. However, one perspective against DAX gains is the relatively slow vaccination program in the Eurozone. Economic data will be key to see how the eurozone is managing.

Over the last 33 years, the DAX has gained 22 times. The Dax usually has a strong time of year between 09 March and 01 May gaining an average of +3.69%. Last year the DAX fell -1.49% during this period. The largest loss was in 2002 with a -7.04% loss.

Trade Risks:

1. A sharp rise in US 10 year yields could cause the US and global stock sell-off.
2. A spike higher in bond volatility would flag the danger of a stock sell-off in advance. Remember, this is about the speed of the bond yield rise. Too fast, and stocks will fall.

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Gold: 5 reasons it is hard to be a bull
by Giles Coghlan, Chief Currency Analyst, HYCM

Over the last few weeks, it has hard to be positive about the outlook for gold. The key reasons are:

1. The vaccine inspired sell-off
Look at the way gold sold off on the Pfizer vaccine news. It was the largest loss in gold futures in 7 years and expressed how the market felt about gold post-COVID-19.



2. Outflow in Exchange Traded Funds
These outflows from the spot and the futures markets were matched in the ETF outflows. Remember that ETF inflows had underpinned last year’s gold rally. They are now tailing off.

3. Treasury yields moving higher
Rising yields are just another expression of the recovery story. As US 10 year yields started to rise at the start of the year this lifted the dollar. A stronger dollar (at least relative to last year) was another headwind for gold.

4. BTC hitting above $50,000
Bitcoin’s gain has been gold’s loss. The market capitalisation of Bitcoin was about $190 billion last year. This was in November as it came up in conversation with a UK National Journalist in The Express around the start of the year. See here. The market capitalisation is now over $1.5trillion. The shorthand for me is that it is turning into a ‘digital gold’. That may or may not prove to be accurate in the future. However, it does explain what has happened.

5. Remember GFC
Post the last global financial crisis gold sold off as economies started to recover.

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Week Ahead 08.03.21
by Giles Coghlan, Chief Currency Analyst, HYCM

This week saw continued focus on the rise of global bond yields. US 10 year yields starting rising again midweek on both better than expected data and news that the US could vaccinate its population by May. This caused bond traders to expect a faster than forecast US recovery. The risk for equity markets is that a Federal Reserve that increases interest rates can pressure US companies. Rising interest rates may impact their ability to service existing debt, especially if the rises come too quickly. Equities may be under pressure in the near term if bind yields rise too far, too fast.

Other key events from the past week

1. AUD: Interest rate, Mar 02. Interest rates (0.10%) and bond purchases (AUD$100 billion) remain unchanged. The RBA brought forward bond purchases in response to the rapidly rising bond yields & was prepared to do so again.
2. US: Equities pressured, Mar 03. The sharp rise in US bond yields is weighing on US equities. A shortened three-month timeframe for the US to be back to normal raises questions about the speed of coming US rate hikes. This creates pressure for US stocks in the near term.
3. BTCUSD: Bitcoin finds support, Mar 01. BTCUSD found support at the $44,000 level this week and institutional investors remain buying any dips. The move by PayPal to buy crypto custody firm Curv further underlines the growing investment fortune 500 companies are making into BTCUSD.

Key events for the coming week

1. CAD: Interest rate, Mar 10. The BOC is expected to keep rates at their current level for the foreseeable future. However, the economic data out of Canada has been good recently, so investors will be looking at the rate statement for any clues about rate hikes. See the last meeting and the revised growth forecasts.
2. EUR: Interest rate? Mar 11. The ECB is expected to keep rates unchanged, but the key focus will be on what they will do about rising bond yields. Will they allow yields to rise or will they either accelerate or expand their bond purchases?
3. US: Bond yields, Mar 08. The key area to watch is how the US will respond to rising bond yields. If the Fed ignore the rising yields it will accelerate their rise and send the USD higher.

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Market Mood Copper 05.03.21
by Giles Coghlan, Chief Currency Analyst, HYCM

Is Copper set for further falls in the near term? Listen on Youtube.


Copper has seen a strong sell-off this week as concerns rise about a faster than expected increase in US rates. The prospect of the US being vaccinated by May has sent bond yields moving higher and if that surge higher in yields continue then risk-off trading should remain.

If the Non-Farm Payroll data comes in string today that could cause a further surge higher in US bond yields. If that is the case then commodities and equities could have a very bad close into the weekend. Also, Copper has been weak over the last 10 years around this time of year losing value 8 times between 05 March and April 01. Although medium-term copper should find buyers this could be the pullback that has been due for some time.

Trade Risks: If the Fed implements yield curve control or some other device to control rising yields that will invalidate this outlook and allow equities and commodities to keep rising.

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Has Copper overshot fundamentals?
by Giles Coghlan, Chief Currency Analyst, HYCM

Copper prices have been on a very strong rally in line with other commodities.



Futures markets had rallied above $9,000 a ton on the reflationary trade narrative. This is all in the hope that a global vaccine rollout would bring economies back to normal. However, the recent surge higher in bond yields is causing markets to worry that things are going too far, too quickly.

Copper is vulnerable to come under pressure if those yields keep heading higher. On top of the bond yield rise on faster rate rises being anticipated stockpiles in copper are also very high.

Bloomberg reports copper inventories are at elevated levels

According to Bloomberg, the levels of copper sat in China’s bonded warehouses have stayed high since the surge higher from July last year. Stockpiles have also been reported to be picking up in Shanghai, London, and New York since late February. Furthermore, with reports that China is also talking about walking back from easy policy copper looks like it will find sellers on the short term rallies higher.

However, deeper pullbacks should still find buyers as the return to global growth should support prices over the medium term.

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Seasonal Insights Adidas 08.03.21
by Giles Coghlan, Chief Currency Analyst, HYCM

Is the perfect time to buy Adidas shares approaching? Listen on Youtube.


Adidas has risen higher for 10 years in a row between March 13 and May 06. The largest gain was in 2019 with a huge +23.44% rise. It rose every single year and the smallest gain was +0.67% in 2014. The maximum rise was 30.85% last year and the average return was +9.88%.

Trade Risks: The current sell-off on rising US 10 year bond yields could accelerate moves to the downside in global stocks and remains a risk going forward.

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